Loan against gold finds more takers

Manappuram Finance,witnessed a 120 per cent rise in its gold loan disbursement in the quarter ended June from Rs 3,111 crore in the quarter ended June 2010 to Rs 6,858 in June 2011.

Muthoot is expecting a rise of 40-50 per cent in its retail loan portfolio. Market players say that there has been a change in the perception about gold loans and that has helped in the growth.

“As organised players have moved to rural areas and small towns there has been a substantial shift from the unorganised players to the organised players. Also,over the last few years,substantial advertising and entry of PSU banks and private banks in this businesses is giving it more and more respectability,” said George Alexander Muthoot,MD,Muthoot Finance.

A rise in the interest rate of personal loans between two and three percentage points over the last one year as a result of rising interest rates and several banks reducing their exposure to personal loans is also working to the gold loans advantage.

“There has been a slight surge in interest rate on gold loan rates but it is not to the same extent as the personal loans and also they are cheaper than personal loans,” said Biju Pillai,head,personal loan,gold loan and loan against securities at HDFC Bank,which is also witnessing a strong demand.

While the acceptability of the product has increased,rise in gold price has increased the amount of loan that one can avail on the security. Over the last one year,the prices of gold have gone up from Rs 19,100 per 10 gram last year to Rs 28,000 per 10 gram at present.

“Over the last one year,if the gold prices have gone up by over 40 per cent,the value of loan per gram of gold has risen between 25-30 per cent,” said I Unnikrishnan,MD,Manappuram Finance.

Given the current rise in prices,gold loan companies are careful about the loans advanced.

“At present our average advance ratio is about 62 per cent of the gold content. While the entitlement has risen as a result of rising prices,gold loan companies are careful about their unprecedented rise over the last two months,” added Muthoot who expects a growth of 40-50 per cent increase in his retail loan portfolio.